BI: MPR session won't cause rupiah to fall

A'an Suryana, The Jakarta Post, Jakarta

Bank Indonesia is hopeful that the upcoming Annual Session of the People's Consultative Assembly (MPR) will not cause the rupiah to fall as market players are now more resilient to political developments in Indonesia.

"Market players can now distinguish between political and economic developments," Bank Indonesia deputy governor Aslim Tadjuddin he told reporters Friday.

He said in the past, the market could be easily provoked even by minor political developments. But nowadays, political rallies in Jakarta would not trigger panic dollar buying, he said.

"In the past, any political demonstration could trigger investors to buy dollars, leading to the fall of the rupiah. But market players are apparently now used to that situation," Aslim said.

The MPR is set to hold its Annual Session from Aug. 1 till Aug. 10. There is concern that the rupiah will be under pressure during the period as political tensions intensify.

Some analysts have said that the recent weakening of the rupiah against the U.S. dollar was partly caused by fears of political friction during the session.

The rupiah has been one of the best performing currencies in the region during the first half of this year, strengthening to around Rp 8,500 per U.S. dollar in April. But this month the local unit was under pressure mainly due to strong demand from the corporate sector to repay maturing foreign debts. The rupiah sunk to below the Rp 9,000 per dollar level.

This week, the value of the rupiah is hovering at between Rp 9,000 to Rp 9,030 per dollar. The current trend has prompted speculation that the rupiah would continue to fall in the run up to the upcoming MPR session.

The central bank has previously said that the ideal level of the rupiah now was at between Rp 8,500 and Rp 8,900.

The pressure on the local unit has prompted Bank Indonesia to start increasing its benchmark interest rates again in the past two weeks.

After moving in a declining trend since the beginning of the year, the interest rate on Bank Indonesia one-month SBI promissory notes started to slowly move upward again in the middle of this month. This week, the SBI rate slightly increased to 14.99 percent, up from 14.98 percent in the previous week. It was at more than 18 percent late last year.

But Aslim said that the SBI rate will still be in a declining trend to reach the favorable 14 percent rate.

"Two basis points increase are nothing," Aslim said.